BALRAMPUR CHINI MILLS
Reco price: Rs 141
Current market price: Rs 140.40
Target price: Rs 148
Upside: 5.4%
Brokerage: Sharekhan
Balrampur Chini Mills’ ex-factory sugar realisations have increased by around 25 per cent sequentially for the December 2009 quarter to Rs 32 per kg; average realisation for December month is higher at Rs 34 per kg. In the first week of January 2010, sugar realisations have spiked further and are currently at around Rs 38 per kg. With the overall sugar scenario likely to remain tight, prices in India and hence the realisations of sugar producers are likely to remain firm.
Balrampur is expected to report a hefty profit growth in the December 2009 quarter on the back of an 80 per cent year-on-year increase in sugar realisations and gains from the sale of low-cost sugar inventory. Thus, despite 44 per cent lower sugar sales volumes, net profit is likely to jump 67 per cent to Rs 85.5 crore.
At Rs 141, the stock trades at 10.6 times and 10.2 times its 2009-10 (September year ending) and 2010-11 estimated earnings, respectively. The increase in sugar prices leaves scope for further up gradation of its estimates. Maintain buy.
ITC
Reco price: Rs 256
Current market price: Rs 255.90
Target price: NA
Brokerage: Edelweiss Securities
ITC witnessed strong volume growth of 5 per cent and 7 per cent in the June and September quarters, respectively, and expects this trend to continue. Channel checks suggest a volume growth of around 7 per cent in December quarter. Moreover, cigarette companies have put forward a representation to the government to introduce smaller filter cigarettes, which could help counter the increasing contraband menace.
In the FMCG business, ITC has maintained clear focus on cost curtailment since the past few quarters and expects losses to reduce by around 20 per cent each in 2009-10 and 2010-11. The hotel business, which was a drag on the numbers, is now looking up with a 10-15 per cent sequential rise in average room rates (ARR) and occupancy of over 70 per cent. Compared to a year-on-year decline in EBIT (earnings before interest and tax), the hotel business is expected to show flat year-on-year EBIT growth in March 2010 quarter and a much stronger 2010-11. The agri and paper businesses are expected to repeat their strong performance as witnesses in September quarter.
Given the improved outlook across businesses, the brokerage has upgraded its 2009-10 and 2010-11 EPS estimates by 2 per cent and 6 per cent, respectively. At Rs 256, the stock is trading at a PE of 24.5 times and 20.5 times estimated earnings for 2009-10 and 2010-11, respectively. Maintain buy.
MAHINDRA & MAHINDRA
Reco price: Rs 1,081
Current market price: Rs 1,152.95
Target price: Rs 1,265
Upside: 9.7%
Brokerage: Emkay Global
Consequent to the expectation of a good rabi crop and strong performance (volumes) in December 2009 quarter, the brokerage has upgraded its volumes estimates for M&M by 16 per cent for 2009-10 and 17 per cent for 2010-11. Within categories, tractors and three wheelers (including Gio) have seen strong volumes upgrades. Despite strong volume upgrades and hence operating leverage, it expects 2010-11 EBIDTA margins to decline by 40 basis points to 13.3 per cent vis-à-vis earlier estimates due to higher raw material cost pressures. However, standalone EPS has been upgraded by 16 per cent and 12 per cent to Rs 65.6 and Rs 69 for 2009-10 and 2010-11, respectively.
M&M’s standalone business is valued at 9 times EV/EBIDTA (10 per cent discount to Maruti). The value of the standalone business is upgraded by 11 per cent to Rs 937 per share. Besides, value of listed subsidiaries has also been upgraded by 18 per cent to Rs 328 per share. As a result, M&M’s target price had been upgraded by 13 per cent to Rs 1,265. Maintain accumulate.
JAGRAN PRAKASHAN
Reco price: Rs 137
Current market price: Rs 135.60
Target price: Rs 165
Upside: 21.7%
Brokerage: Ambit Capital
Daink Jagran, the flagship brand of Jagran Prakashan (JPL), commands a leadership position in the major market of UP. Its bilingual compact daily, I-Next, is gaining traction among the youth and has generated readership of around 1.9 million. Presence in outdoor media and event management is expected to provide further fillip to the growth prospects. JPL is expected to benefit the most due to the share of ad-spend on an upswing in tier 2 and 3 cities, higher dependence of about 63 per cent on local advertising and rising share of colour ads. As a result, based on the company’s leadership in major Hindi markets and increase in the ad-spend, expect JPL’s ad-revenue to grow at a CAGR of 19.4 per cent over FY09-12.
Higher consumption of domestic newsprint and better management of newsprint cost is expected to improve margins. This coupled with higher revenue growth is expected to result in higher margins. Over FY09-FY12, expect JPL’s earnings to grow at 40 per cent CAGR. The stock has traded in the PE band of 10-40 historically, with an average of 22 times. Based on the company’ growth potential, the brokerage has valued the stock at 20 times its 2011-12 EPS. Maintain buy.
IRB INFRASTRUCTURE
Reco price: Rs 244.70
Current market price: Rs 241.85
Target price: Rs 297
Upside: 22.8%
Brokerage: HSBC Securities
IRB Infrastructure has the largest portfolio of build-operate-transfer (BOT) toll assets (1,154 km across 16 projects). IRB is estimated to record a CAGR of 47 per cent in earnings through FY09-12, driven by four contracts it has won in the last six months, new projects that are expected to be awarded over the next year and revenue from two new toll roads. Given the government’s renewed focus on building of highways, IRB is estimated to capture around 6.5 per cent share ($2.6 billion) of India’s road sector during 2009-13. IRB would need to raise fresh capital to fund this growth. Its historical capital utilisation record has been positive; the value of existing projects is estimated at 1.9 times its invested equity.
IRB’s sum-of-the-part value consists of Rs 138 for existing projects, Rs 113 for its construction business, Rs 10 for other businesses and Rs 37 for future growth. IRB is expected to deliver 62 per cent earnings CAGR during FY09-11 and return on equity of 20 per cent for 2010-11 and is superior to its Chinese peers. Superior fundamentals justify IRB’s higher price-to-book of 3.3 and price-to-earnings of 17.8. Factor in IRB’s impending Rs 1,200 crore fund-raising, the stock trades at an implied 2010-11 estimated price-to-book of 2.5. The key risk to the valuation includes a sharp drop in traffic growth and increase in interest rates.
Current market prices as on January 7, 2010
